Black and Latino Households are on a Short Road to Zero Wealth, Hollowing Out America’s Historic Middle Class

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Washington, D.C. – Black and Latino households are losing wealth at an accelerating pace, threatening the viability of the American middle class and the nation’s overall economic health, according to a new report from the Institute for Policy Studies (IPS) and Prosperity Now that examines the growing racial wealth divide.

If current trends continue, by 2020 median Black and Latino households stand to lose nearly 18% and 12% of the wealth they held in 2013, respectively, while median White household wealth increases 3%. At that point--just three years from now--White households are projected to own 85 times more wealth than Black households and 68 times more wealth than Latino households.

At a time when households of color make up a growing share of the population and are projected to reach majority status by 2043, their declining wealth is already taking a significant toll on the broader economy. The nation’s overall median wealth decreased 20% from 1983 to 2013 ($73,000 to $64,000)--a period when Black and Latino median wealth went down and White wealth slowly went up.

If the racial wealth divide is not addressed and is not exacerbated by harmful policies, median Black household wealth will hit zero by 2053, while median White household wealth will climb to $137,000, according to the report. Latino household wealth would hit zero 20 years later. A report released last year by IPS and Prosperity Now (formerly CFED) found that if current trends continue, it will take the average Black family 228 years to amass the same amount of wealth that White families have today and it will take Latino families 84 years to reach that goal.

“If the racial wealth divide continues to accelerate, the economic conditions of Black and Latino households will have an increasingly adverse impact on the economy writ large because the majority of U.S. households will no longer have enough wealth to stake their claim in the middle class,” according to the report’s authors.

The Road to Zero Wealth cites a range of systemic factors and current policies as drivers of the racial wealth divide. These include past discriminatory housing policies that continue to fuel an enormous racial gap in homeownership rates, and an “upside down” tax system that helps the wealthiest households get wealthier while providing the lowest-income families with almost nothing.

“Since the election of President Trump, much discussion has focused on the economic challenges facing the White working class. We need to expand the conversation to address the dangerously depleting wealth in Black and Latino communities and ensure a majority of the nation attains middle-class economic security,” said Dedrick Asante-Muhammad, a co-author of the report and a senior fellow for Prosperity Now’s Racial Wealth Divide Initiative.

The report focuses on wealth rather than income because it is considered a truer measure of a household’s long-term financial stability. Families with more wealth can cover emergencies without going into debt and take advantage of economic opportunity, such as buying a home or saving for college.

However, earning a middle-class income does not guarantee a family middle-class economic security, according to the report. White households in the middle income quintile—those earning $37,201-61,328 annually—own nearly eight times as much wealth ($86,100) as Black middle-income earners ($11,000) and ten times that of their Latino counterparts ($8,600).

This disconnect in income and wealth is visible across every socioeconomic level. The report found that on average, only Black and Latino households with an advanced degree have middle-class wealth or higher, while White households, on average, need only a high school diploma to attain that same level of wealth. Overall, roughly 70% of Black and Latino households fall below the $68,000 wealth threshold needed for middle-class status, compared to only 40% of White households.

“This is a national crisis that demands immediate action,” said Chuck Collins, co-author of the report, director of IPS’s Program on Inequality and co-editor of Inequality.org. “Building an inclusive middle class hinges on our ability to adopt targeted and effective programs that address the specific needs of low-wealth communities of color. This approach would potentially benefit all low-wealth Americans.”

The report calls on the Trump administration and Congress to consider a range of policy options to help close the racial wealth divide. They include:

Changing our nation’s tax code to stop subsidizing those who are already wealthy and start investing in opportunities for low-wealth families to build wealth. Specifically, the report recommends reforming the mortgage interest deduction and other tax expenditures, bolstering and expanding the federal estate tax, and creating a net-worth tax on multi-million-dollar fortunes.

Protecting low-wealth families from wealth-stripping practices by strengthening the Consumer Financial Protection Bureau and closing the nefarious offshore tax shelters currently enabling the ultra-wealthy to hide their assets.

Investing in bold new programs like Children’s Savings Accounts, automatic-enrollment retirement accounts, federal jobs guarantees and a racial wealth divide audit of government policies, all of which are vital to reducing the gap between the ultra-wealthy and the rest of the country.

The report notes that creating a strong American middle class didn’t happen on its own. “It required a healthy, vibrant economy, including significant investments in Americans’ ability to build lasting financial security, such as through homeownership, higher education and transportation.” But these policies were most often intentionally directed at White communities and away from Americans of color. We are “committing economic suicide,” the report concludes, if we continue to “exclude the majority of the country from opportunities to invest in the future.”

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Prosperity Now (formerly CFED) believes that everyone deserves a chance to prosper. Since 1979, we have helped make it possible for millions of people, especially people of color and those of limited incomes, to achieve financial security, stability and, ultimately, prosperity. We offer a unique combination of scalable practical solutions, in-depth research and proven policy solutions, all aimed at building wealth for those who need it most.

The Institute for Policy Studies is a multi-issue research center that has conducted path-breaking research on inequality for more than 20 years. The IPS Program on Inequality and the Inequality.org website provide research, advocacy and policy development on issues related to income and wealth inequality matters.

If current federal wealth-building policies remain in place, it will take the average African-American family 228 years to amass the same amount of wealth that white families have today and it will take Latino families 84 years to reach that goal, according to a new report from Prosperity Now and the Institute for Policy Studies (IPS).